Australian Gas Explorer May Sue State Over Fracking Ban

Workers change out a pipe on The Bellarine 1 drilling rig west of Geelong. The project is a joint venture with Lakes Oil Jupiter and Petroleum, 28 July 2005. JAMES DAVIES/Fairfax Media via Getty Images/File

Lakes Oil, a junior oil and gas explorer in Australia, is considering the grounds it may have for suing Victoria state, after the government there permanently banned fracking and extended a halt on onshore conventional gas drilling to 2020.

Lakes Oil shares sank 50% on Wednesday in their first trading since the fracking ban was announced, and the stock was the second most active on the Australian exchange.

The moves by the southeastern state mean Lakes will not be able to go ahead with two tentative deals lined up in 2014 to supply gas from its Wombat onshore conventional gas field to U.S. giant Dow Chemical (DOW) and Australian food manufacturer Simplot.

Sleeman would not say whether his company would seek compensation from Victoria, but said it was a “really relevant question.”

“I invite you to have a look at what has happened elsewhere. The key example is Metgasco in New South Wales – not exactly the same situation – but ultimately it was compensated by government,” he said.

New South Wales agreed last year to pay Metgasco A$25 million ($19 million) to buy back three exploration licenses after suspending approval for drilling at a promising coal seam gas site due to public protests.

A lawyer, however, said it would be difficult to win compensation from the Victorian government, because, mining and petroleum licenses are not property rights. They are administrative entitlements, which a government can terminate with legislation.